It’s hard to be shocked in this environment, but tech is still managing to deliver surprises. After a rip-roaring 30% rally over the last six weeks, the Nasdaq Composite has wiped out all of its 2020 losses. Through Friday’s close, the tech-heavy index is up 1.7% on the year.
At least 20 million Americans have lost their jobs amid the worst economic decline since the Great Depression and yet the Nasdaq is within spitting distance of its February all-time high.
The rally reflects an increased certainty that Covid-19 is reshaping the economy in lasting ways that will benefit broad swaths of the tech sector. It starts with the five megacaps—
(GOOGL). As we’ve noted, the companies should all exit the crisis stronger than they went in. But there is more to the story:
E-commerce is on fire, and it goes well beyond Amazon. Big year-to-date gainers include
(W), the home furnishings retailer;
(ETSY), which sells handcrafted products;
(SHOP), which powers thousands of retailers; and online pet product seller
(CHWY). Expect some lasting gains.
Cloud computing is having a big moment. “We’ve seen two years’ worth of digital transformation in two months,” Microsoft CEO Satya Nadella said recently. The winners here go beyond
Zoom Video Communications
(DOCU) last week hit record highs.
(FSLY) shares spiked 46% on Thursday alone, as the content delivery network posted better-than-expected financial results.
(TWLO), which provides online communications tools to many companies, jumped 40% last week on strong first-quarter results. Other cloud plays with fat year-to-date gains include
We’re not just working from home. We’re doing everything at home.
(CHGG) is benefiting from the learning-from-home trend.
Blue Apron Holdings
(APRN) has seen a spike in demand for its meal-prep kits.
(NFLX) had more than twice the number of net new subscribers than originally expected.
(PTON) revenues are soaring as people shift to exercising at home.
Things could be worse: Until last week, ride-sharing companies
(UBER) and Lyft (LYFT) lagged behind the Nasdaq—for good reason. Their ride volumes have collapsed, with U.S. air travel down as much as 95% and knowledge workers working from home.
Last week, however, both stocks spiked amid signs of stabilizing trends. Uber said that U.S. bookings, while down 80% year-over-year, were improving the last four weeks running. That news comes a week after better-than-expected commentary about online advertising from both Alphabet and Facebook.
The problem now for investors is that many tech trades are getting crowded—and not just the 128% year-to-date gain in Zoom Video stock.
We asked a few of our favorite tech investors for stocks still worth buying.
Dan Niles, founder and portfolio manager for the Satori Fund, a tech-focused hedge fund, is taking a three-pronged approach to a market he considers overpriced.
He’s also been shopping for damaged goods, picking up shares of both
(VIAC), on the theory that they should recover in the long run—and get a boost for their streaming video operations in the short run.
Niles is also bullish on
(DKNG), which he thinks will benefit as states turn to sports gambling to boost revenues coming out of the downturn. Niles is short highflying enterprise software stocks. And he recently shorted Apple—Niles is no believer in the 5G iPhone supercycle.
Paul Wick, who has run the Columbia Seligman Communications and Information Fund for 30 years, is bullish on semiconductor-equipment stocks. He thinks recent concerns about export restrictions to China are overblown and advises buying
Wick remains bullish on chips, too.
(MU), he says, benefits from rising prices for flash memory. He thinks Micron could generate earnings of $1 per share in its May quarter, well above Wall Street’s consensus forecast of 56 cents.
He also likes
(WDC). “WD isn’t a player in the tough mobile NAND business,” he says. “They’re mostly in enterprise solid-state drives, which is more stable. And they are doing well in enterprise hard drives, with a very stable duopoly” with
Western Digital recently suspended its dividend, announcing plans to redirect cash to pay down debt. Wick notes that some investors don’t like the strategy, but he thinks WD could earn $7 to $9 a share in calendar 2021, implying a current price to earnings multiple of just five times, well below the stock’s five-year average P/E of nine.
(HPQ) is down more than 25% this year after
(XRX) abandoned its long-shot takeover bid. But as Wick notes, HP has pledged to buy back $15 billion of its stock over the next three years—70% of the current market value—including $8 billion in the first 12 months after the company’s annual meeting on Tuesday.
Let the buybacks begin!
Write to Eric J. Savitz at email@example.com